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Indonesia: Restrictions on allowable foreign tax credits

Indonesia: Restrictions on allowable foreign tax credit

The Ministry of Finance issued a regulation (No. 192/PMK.03/2018) concerning tax credits on overseas income and specifically concerning the availability to claim foreign tax credits in Indonesia.


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The new regulation is effective as of 31 December 2018, and is more comprehensive than the prior regulation regarding foreign tax credits.

In calculating the maximum allowable foreign tax credit, taxpayers must select the lowest of:

  • The actual tax paid in a certain country.
  • The portion of tax payable due to income from that country.
  • The tax amount pursuant to an income tax treaty between Indonesia and the source-of-income country, and by applying an assumption that Indonesia tax residents are considered to be non-residents of the source country and are taxed at non-resident rates in the source country; if this amount is less than the other two options (listed above), then the maximum amount of the foreign tax credit is limited to that amount. If the income tax treaty provides that a certain type of income is only taxable in Indonesia, then no foreign tax credit is allowed. [This is a new criterion added by the regulation No. PMK-192.]

Under the new regulation, losses on foreign operations (including business losses from a foreign branch or foreign representative office) cannot be subtracted when calculating taxable income. Furthermore, income from a “trust” must be reported when it is received, and the source country of the income is the country where the trust is established. If the trust is required to pay foreign tax on its income, then the trust’s foreign tax return (or evidence of tax paid by the trust) can be used to claim a foreign tax credit against the amount of Indonesian income tax payable.

Companies that conduct their bookkeeping in U.S. dollars must convert the foreign tax credit noted in a foreign currency into U.S. dollars.

Read an April 2019 report [PDF 1.4 MB] prepared by the KPMG member firm in Indonesia

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